Testimony 

Before the Committee on Commerce, 

Science, and Transportation, U.S. Senate

United States General Accounting Office 

GAO

For Release on Delivery 

Expected at 9:30 a.m. EST 

Wednesday, February 25, 2004 INDIVIUDAL FISHING 

QUOTAS 

Economic Effects on 

Processors and Methods 

Available to Protect 

Communities 

Statement of Anu K. Mittal, Director 

Natural Resources and Environment 

GAO-04-487T 
www.gao.gov/cgi-bin/getrpt?GAO-04-487T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Anu Mittal at 

(202) 512-3841 or mittala@gao.gov. 

Highlights of GAO-04-487T, testimony 

before the Committee on Commerce, 

Science, and Transportation, United 

States Senate 

February 25, 2004 

INDIVIDUAL FISHING QUOTAS 

Economic Effects on Processors and 

Methods Available to Protect 

Communities 

The Alaskan halibut IFQ program has had varied economic effects on 

processors. The program extended the halibut fishing season to 8 months, 

allowing more halibut to be processed and sold as a fresh product. This shift 

to fresh product led to the emergence of the buyer broker, an increased 

competition for fish, and higher halibut ex-vessel prices (prices paid to 

fishermen for raw product). In addition, a net decrease of 12 shore-based 

plants that processed halibut occurred between 1995, when the IFQ program 

was implemented, and 2001, as well as a reallocation of market share. For 

the 28 companies that processed halibut in both 1995 and 2001, 15 lost 

market share and 13 gained market share. 

Factors other than the implementation of the IFQ program, such as the 

diversity and value of species processed, could also have impacted the wellbeing of Alaskan halibut processors. For example, halibut represented a 

relatively small portion of the fish processed by shore-based plants in Alaska 

and of total plant value. Specifically, from 1994 to 2001, halibut represented, 

on average, 2 percent to 4.1 percent of all fish processed at a plant and 

accounted for 4.4 percent of total plant value in 1994 and 7.9 percent in 2001. 

The only estimate of the program’s economic effects on processors is a 2002 

study commissioned by the state of Alaska. This study estimated that halibut 

processors experienced a 56-percent loss in gross operating margins. 

However, GAO’s analysis, as well as the analyses of others, identified 

concerns about the study’s assumptions, representiveness, and potential for 

participant bias that raise questions about the reliability of its estimates. 

Several methods are available for protecting the economic viability of fishing 

communities under an IFQ program. The easiest and most direct way is to 

allow communities to hold harvesting quota and decide how this quota is to 

be used. In addition, fishery managers can help ensure the economic viability 

of communities by adopting quota management rules aimed at protecting 

certain groups of fishery participants. However, protecting the economic 

viability of communities is a social objective, and realizing such an objective 

may undermine economic efficiency and raise questions of equity. For 

example, rules that allow communities to hold harvesting quota may result 

in allocations to communities that do not have the knowledge and skills to 

manage the quota effectively and thus increase costs and/or decrease 

revenues. Similarly, rules that appear to favor one group of fishermen over 

another may result in fairness and equity challenges. Fishery managers also 

face a number of challenges associated with the methods available to protect 

communities. The resolution of these issues ultimately will depend on the 

specific circumstances within a fishery and the overall program objectives. 

To address overfishing, the 

National Marine Fisheries Service 

started using individual fishing 

quotas (IFQ) as a fishery 

conservation and management tool 

in 1990. Under an IFQ program, a 

regional fishery management 

council sets a total allowable catch 

and allocates the privilege to 

harvest a certain portion of the 

catch in the form of quota to 

individual vessels, fishermen, or 

other eligible recipients. 

IFQ programs have achieved many 

of the desired conservation and 

management benefits, such as 

helping to stabilize fisheries, 

reducing excessive investment in 

fishing capacity, and improving 

safety. However, concerns have 

been raised about the economic 

effects of IFQ programs on fish 

processors and fishing 

communities, among others. 

This testimony is based on two 

GAO reports on issues related to 

the use of IFQs (Individual 

Fishing Quotas: Better 

Information Could Improve 

Program Management, GAO-03-

159, Dec. 11, 2002, and Individual 

Fishing Quotas: Methods for 

Community Protection and New 

Entry Require Periodic 

Evaluation, GAO-04-277, Feb. 24, 

2004). 

Specifically, GAO addressed the (1) 

economic effects of the Alaskan 

halibut IFQ program on processors 

and (2) the methods available for 

protecting communities under an 

IFQ program. 
Page 1 GAO-04-487T 

Mr. Chairman and Members of the Committee: 

We are pleased to be here today to discuss the economic effects of 

individual fishing quotas (IFQ) on processors and methods available for 

protecting communities under an IFQ program. 

Overfishing is a problem with far-reaching ecological and economic 

consequences. About one-third of the fish stocks assessed by the 

Department of Commerce’s National Marine Fisheries Service (NMFS) are 

overfished or will become overfished if conditions do not change. When a 

fishery—composed of one or more fish stocks within a geographic area—

cannot be sustained, the marine ecosystem can be transformed, thus 

threatening the livelihood of fishermen and the way of life in many 

communities. 

Fishery management practices in U.S. waters are developed primarily by 

regional fishery management councils established under the MagnusonStevens Fishery Conservation and Management Act (Magnuson-Stevens 

Act).1

 Fishery councils, under the direction of NMFS, have used several 

types of controls to maintain the health of U.S. fisheries. In 1990, NMFS 

started using IFQs as a conservation and management tool. Under an IFQ 

program, a regional fishery management council sets a maximum, or total 

allowable catch, and allocates the privilege to harvest a certain portion of 

the catch in the form of quota to individual vessels, fishermen, or other 

eligible recipients. 

IFQ programs have achieved many of the desired conservation and 

management benefits, such as helping to stabilize fisheries, reducing 

excessive investment in fishing capacity, and improving safety. However, 

concerns have been raised about the economic effects of IFQ programs on 

fish processors and fishing communities, among others. 

Our testimony is based on two reports we prepared at the request of this 

Committee’s Subcommittee on Oceans, Fisheries, and Coast Guard.2

 The 

first report focused on the consolidation and foreign holdings of quota and 

 1

Pub. L. No. 94-265 (1976) (codified as amended at 16 U.S.C. §§ 1801-1883. 

2

Individual Fishing Quotas: Better Information Could Improve Program Management, 

GAO-03-159 (Washington, D.C.: Dec. 11, 2002) and Individual Fishing Quotas: Methods for 

Community Protection and New Entry Require Periodic Evaluation, GAO-04-277

(Washington, D.C.: Feb. 24, 2004). 
Page 2 GAO-04-487T 

the economic effects on processors. The second report addressed the 

methods available to protect the economic viability of communities and 

facilitate new entry into IFQ fisheries. For our study of the economic 

effects on processors, we focused on the Alaskan halibut IFQ program, 

which began in 1995. We interviewed fishery participants, visited 

processing plants in Alaska, analyzed public data, and reviewed the only 

study that attempted to quantify the economic effects of the program on 

processors. For our study of community protection methods available 

under an IFQ program, we visited domestic and foreign fishing 

communities in Alaska, Maine, Iceland, Scotland, and New Zealand. In 

these communities and elsewhere, we spoke with fishery managers, 

participants, and researchers; reviewed literature on domestic and foreign 

quota-based programs; and reviewed key regulations and studies. Our 

testimony today discusses the (1) economic effects of the Alaskan halibut 

IFQ program on processors and (2) the methods available for protecting 

communities under an IFQ program. 

In summary, we found the following: 

• The Alaskan halibut IFQ program had varied economic effects on 

processors—some processors were adversely affected while others 

benefited. First, the program extended the halibut fishing season to 8 

months, thus allowing more halibut to be processed and sold as a highervalue fresh product than as a lower- value frozen product. Second, this 

shift to fresh product led to the emergence of the buyer broker, generally a 

one-person operation with lower overhead costs, which resulted in 

increased competition for fish and contributed to higher ex-vessel prices 

(prices paid to fishermen for raw product) for halibut. Third, there was a 

net decrease of 12 shore-based plants that processed halibut between 1995 

and 2001—68 plants stopped processing halibut and 56 started. Over threequarters of the plants that stopped or started processing processed less 

than 100,000 pounds of halibut annually. Finally, there was a reallocation 

of market share. Of the 28 companies that processed halibut in both 1995 

and 2001, 15 lost market share and 13 gained market share. 

• The economic well-being of processors may also have been impacted by 

factors other than the implementation of the IFQ program, such as the 

diversity and value of species processed. Our analysis indicates that 

halibut represented a relatively small portion of the fish processed by 

shore-based plants in Alaska. Specifically, from 1994 to 2001, halibut 

represented, on average, 2 percent to 4.1 percent of all fish processed at a 

plant and accounted for 4.4 percent of total plant product value in 1994 

and 7.9 percent in 2001. 
Page 3 GAO-04-487T 

• We identified only one study that estimated the economic effects of the 

IFQ program on halibut processors. This study, commissioned by the state 

of Alaska, concluded that halibut processors experienced a 56-percent 

($8.7 million) loss in gross operating profits, primarily because of the IFQ. 

However, our analysis, as well as the analyses of others, identified 

concerns about the study’s assumptions, representiveness, and potential 

participant bias, that raise questions about the reliability of the study’s 

estimates. 

• Several methods are available to help protect the economic viability of 

fishing communities under an IFQ program. The easiest and most direct 

way is to allow the communities themselves to hold harvesting quota and 

decide how this quota is to be used. In addition, fishery managers can help 

ensure the economic viability of communities by adopting quota 

management rules aimed at protecting certain groups of fishery 

participants. However, it is important to recognize that protecting the 

economic viability of communities is a social objective, and realizing such 

an objective may undermine economic efficiency and raise questions of 

equity. For example, rules that allow communities to hold harvesting 

quota may result in allocations to communities that do not have the 

knowledge and skills to manage the quota effectively and thus increase 

costs and/or reduce revenues. Similarly, rules that appear to favor one 

group of fishermen over another may result in fairness and equity 

challenges. Fishery managers also face a number of challenges associated 

with the methods available to protect communities. The resolution of 

these issues ultimately will depend on the specific circumstances within a 

fishery and the overall program objectives. 

The Magnuson-Stevens Act granted responsibility for managing marine 

resources to the Secretary of Commerce. The Secretary delegated this 

responsibility to NMFS, which is part of Commerce’s National Oceanic and 

Atmospheric Administration. The act established eight regional fishery 

management councils, each with responsibility for making 

recommendations to the Secretary of Commerce about management plans 

for fisheries in federal waters. 

The Magnuson-Stevens Act also established national standards for fishery 

conservation and management. These standards, among other things, 

require the fishery management councils to consider the importance of 

fishery resources to fishing communities. The act defines a fishing 

community as one that is substantially dependent on, or engaged in, 

harvesting or processing fishery resources to meet social and economic 

needs. The definition includes fishing vessel owners, operators, and crew, 

Background 
Page 4 GAO-04-487T 

and fish processors based in the community. NMFS guidance further 

defines fishing community to mean a social or economic group whose 

members reside in a specific location.3

The Alaskan halibut IFQ program changed the environment in which 

traditional shore-based processors operated by extending the halibut 

fishing season from several days to 8 months. Before the IFQ program was 

implemented, fishermen had just a few days to fish the total allowable 

catch for the year. Consequently, they provided processors with large 

amounts of fish in a very short period of time, and processors organized 

their operations to process under these conditions. With the 

implementation of the IFQ program, the “race for fish” was eliminated 

because fishermen had more flexibility in choosing when to fish. As a 

result, processors received halibut in smaller quantities over a longer 

period of time. This extended fishing season enabled more halibut to be 

processed and sold as a fresh product. Consequently, the fresh halibut 

market, as figure 1 shows, increased from 15 percent of the total halibut 

market in 1994 to 46 percent in 2001. 

Figure 1: Fresh Halibut as a Percentage of Total Halibut Production, 1984 through 

2001 

Source: GAO analysis of Alaska Department of Fish and Game, Commercial Operators Annual Report data. 

 3

50 C.F.R. § 600.345(b)(3). 

Alaskan Halibut IFQ 

Program Resulted in 

Changes That Harmed 

Some Processors and 

Benefited Others 

0

10

20

30

40

50

60

1984

1986

1988

1990

1992

1994

1996

1998

2000

Year

Percent

Fresh halibut IFQ begins
Page 5 GAO-04-487T 

However, to take advantage of the fresh market and its potential for higher 

wholesale prices, processors needed ready access to highways and air 

transportation. As a result, processors with access to transportation 

systems may have been competitively advantaged, while those who were 

in more remote locations may have been competitively disadvantaged 

because transportation costs were higher for them. For example, one 

processor estimated that the costs of transporting fresh product from 

Kodiak Island, Alaska, to Seattle, Washington, was about 20 cents a pound 

higher than from Seward or Homer, Alaska, which has ready access to a 

major road system to Seattle. Also, processors located near providers of 

fuel, ice, stores, and entertainment, said that fishermen were more willing 

to deliver fish to them than if these providers were not available. 

The shift toward fresh product in the halibut market led to the emergence 

of the buyer-broker, an intermediary who buys fish at a port and ships it 

fresh to market. Processors told us that the emergence of buyer-brokers, 

generally one-person operations with lower overhead costs, increased 

competition for fish and contributed to the increase in ex-vessel halibut 

prices. As table 1 shows, the percentage of halibut purchased by buyerbrokers increased from 3.7 in 1995 to 17.4 in 1999. 

Table 1: Halibut Buyers, by Category, 1995 and 1999 

 Percentage of halibut purchased 1999b

Category 1995a 1999b

Buyer-broker 3.7 17.4

Shore-based processors 84.9 73.8

Other 11.4 8.8

Total 100.0 100.0

Source: NMFS.

a

1995 was the earliest year for which NMFS data were available. 

b

1999 was the most recent year we could analyze because, starting in 2000, buyers could identify 

themselves in multiple categories. 

Along with an increase in buyer-broker halibut purchases, there was a net 

decrease in the number of individual shore-based plants that processed 

halibut. While some plants stopped processing halibut, others decided it 

was beneficial to start. Between 1995, when the IFQ program was 

implemented, and 2001, 68 plants stopped processing halibut and 56 

started, resulting in a net decrease of 12 plants. Most of the shore-based 

plants that stopped and started processing were relatively small in 

comparison to other processors. About 80 percent of the shore-based 
Page 6 GAO-04-487T 

plants that stopped processing halibut and 75 percent of those that started 

purchased less than 100,000 pounds of halibut annually. 

The IFQ program alone did not necessarily cause a plant to stop 

processing halibut. For example, one processor with a freezing operation 

bought halibut, but its primary business was buying salmon from trollers 

and then selling it. When the supply of farmed salmon increased, 

contributing to price decreases, the owners decided to sell the plant. 

According to industry and government officials, other plants stopped 

processing halibut because plant management made poor business 

decisions that were unrelated to the IFQ program, the plant burned down, 

or the plant was closed for personal reasons. 

In addition to changes in the number of plants processing halibut, 

companies experienced some change in their market share.4

 Some 

processing companies lost market share, while others gained market 

share. Comparing market shares for 1995 and 2001, we found that of 28 

companies that processed halibut in both years, 15 experienced a decrease 

in market share and 13 experienced an increase. 

Factors other than the IFQ program’s implementation could also have 

contributed to changes in the economic well-being of processors. For 

example, according to NMFS officials and industry experts, most 

processors handled other species of fish in addition to halibut, and the 

relative proportion and value of these species will affect the economic 

condition of processors. According to our analysis of data from the Alaska 

Commercial Operators Annual Report, halibut represented a relatively 

small portion of the fish processed by shore-based plants. Specifically, 

from 1994 to 2001, halibut represented, on average, 2.0 percent to 4.1 

percent of all fish processed at a plant. In terms of value, as shown in table 

2, halibut was 4.4 percent of total plant product value in 1994 and 7.9 

percent in 2001. (These ranges are averages for all plants processing 

halibut and a particular plant may process a higher percentage of these 

fish.) In these circumstances the drop in salmon prices most likely had a 

larger effect on economic well-being of processors than the halibut IFQ 

program. 

 4

The market share of a company is the amount of halibut purchased by that processing 

company as a percentage of total halibut purchased by all processing companies. 

Processing companies, in this context, are those companies that own one or more of the 

individual shore-based plants that process halibut. 
Page 7 GAO-04-487T 

Table 2: Average Product Value Percentage, by Species, for Plants Processing 

Halibut and Sablefish, 1994 and 2001 

 Percentage of product value 

Species 1994 2001 

Halibut 4.4 7.9 

Sablefish 4.7 5.3 

Cod 5.7 9.5 

Pollock 12.6 27.6 

Salmon 46.7 35.1 

Other speciesa 25.9 14.6 

Total 100.0 100.0 

Source: GAO analysis of Alaska Department of Fish and Game, Commercial Operators Annual Report data. 

a

Other species include crab, flounder, greenling, herring, lingcod, octopus, perch, prowfish, rockfish, 

shrimp, skate, sole, and turbot. 

To determine the IFQ program’s effect on processors, Alaska’s 

Department of Fish and Game commissioned a study to examine how 

halibut and sablefish processors were affected economically.5 This was the 

only study we could find that attempted to quantify the economic effect 

the IFQ program had on halibut processors. Using a sample of halibut 

processors, the study assessed the change in processors’ gross operating 

margins (revenues minus variable costs of processing). The study used the 

periods 1992-1993 for pre-IFQ margins and 1999-2000 for post-IFQ margins. 

According to the study’s principal author, these years were chosen 

because they provided the longest possible length of time between the preand post-IFQ years for which data were available. The study estimated that 

halibut processors suffered a 56 percent, or $8.7 million, loss in gross 

operating margins because the IFQ program caused halibut prices to 

increase and processors’ market shares to change.6

While we could not validate or replicate the study’s results because the 

proprietary data used in the study were confidential, we identified a 

 5

Matulich, Scott C., and Michael Clark, Efficiency and Equity Choices in Fishery 

Rationalization Policy Design: An Examination of the North Pacific Halibut and 

Sablefish IFQ Policy Impacts on Processors, Washington State University, January 2002. 

6

The study also estimated that gross operating margins for sablefish processors decreased 

by 75 percent, on average. However, we did not review the sablefish estimates because the 

methodology and adjustments used in the study were not clear to NMFS economists or us. 
Page 8 GAO-04-487T 

number of concerns with the study’s assumptions, representiveness, and 

potential for participant bias that brings into question the reliability of the 

study’s estimates. First, we identified several issues of concern about the 

assumptions used in the study. For example, the study assumes that all 

costs, except labor and material inputs, remained fixed from 1992 through 

2000. However, as pointed out in a critique of the study, 7

 this assumption 

would not be appropriate for a period as short as a year, and is clearly 

unjustified for the 7-year period evaluated, because the longer the time 

period assessed, the more likely costs will change. 

Even if the study’s assumption about costs were valid, the pre- and postIFQ periods examined identify a greater negative change in gross 

operating margins than might have been identified if different or longer 

periods had been used. The changes in gross operating margins and the 

estimated economic effects are influenced by the fact that ex-vessel 

halibut prices dipped in the period 1992-1993 and were near their peak in 

1999-2000. (See fig. 2.) Ex-vessel halibut prices in 1999-2000 were 44.5 

percent higher than they were in 1992-1993. However, when different base 

years, such as 1991-1992, are compared with 1999-2000, the price increase 

is 22.7 percent. If these different periods had been used in the study, the 

estimated loss in processor gross operating margins would have likely 

been much less. 

 7

Halvorsen, Robert, Comments on the Matulich and Clark Report, “Efficiency and Equity 

Choices in Fishery Rationalization Policy Design,” University of Washington, April 2002. 
Page 9 GAO-04-487T 

Figure 2: Ex-Vessel Halibut Prices, 1984 through 2001 

$0.00

$1.00

$2.00

$3.00

$4.00

198419851986198719881989199019911992199319941995199619971998199920002001

Year

Price per pound

Halibut IFQ begins

Source: GAO analysis of Alaska Department of Fish and Game, Commercial Operators Annual Report data. 

Note: Ex-vessel halibut prices were adjusted to 1996 dollars using the Bureau of Economic Analysis’s 

Gross Domestic Product implicit price deflator. 

The influence of the choice of base years and the corresponding ex-vessel 

prices can also be demonstrated by looking at the difference between the 

price a processor pays for raw fish and the price a processor receives for 

the processed fish—the processor’s price margin. We calculated a 

simplified version of the price margin to demonstrate the sensitivity of the 

margin to the choice of the time period examined. As table 3 shows, 

comparing the study’s pre- and post-IFQ price margins of 47.3 percent and 

24.1 percent, respectively, shows a 23.2 percentage point decrease in 

margins. However, comparing the price margins for 1991-1992 with 1999-

2000 shows a 13.0 percentage point decrease and comparing 1993-1994 

with 1998-1999 shows a 1.1 percentage point increase. Again, the Alaskan 

study’s estimated loss in processor gross operating margins would have 

likely been less if different time periods had been used. 
Page 10 GAO-04-487T 

Table 3: Price Margins in Selected Pre- and Post-IFQ Years 

Pre-IFQ Post-IFQ 

Years Price margina Years Price margina

1991-1992 37.1 1998-1999 31.4 

1992-1993b 47.3 1999-2000b 24.1 

1993-1994 30.3 2000-2001 23.3 

Source: GAO analysis of Alaska Department of Fish and Game, Commercial Operators Annual Report data. 

a

The price margin is the percentage by which real wholesale price exceeds real ex-vessel price, 

excluding other variable costs. We did not incorporate recovery rates (the amount of raw product 

required to produce the finished product) or product mix in price margin calculations. 

b

Years used in the Alaska study. 

Second, the study’s results may not be representative of the industry as a 

whole. Responses were used from processors representing only 52 percent 

of all halibut purchased in the pre-IFQ years and 61 percent of all halibut 

in the post-IFQ years.8 The study does not provide the actual number of 

participants whose data were used. Without knowing the number of 

participants or the characteristics of the respondents whose data were 

used, we cannot determine whether the study’s estimates are 

representative of the industry as a whole. 

Third, the survey the study’s authors used to request economic 

information from processors may have biased participant responses. In the 

preamble to the survey, participants were told, among other things, that 

the purpose of the study was to test the theory that a harvester-only quota 

allocation transfers wealth from processors to harvesters and that the 

survey’s results would be used to assist in designing future IFQ or other 

fishery rationalization programs. Such statements leave little doubt as to 

how responses could benefit or harm processors with economic interests 

in other fisheries. According to standard economic research practice, 

these types of statements are to be avoided when designing a survey 

because they can influence the results. 

 8

In total, 53 halibut processors, representing 88 percent of all halibut purchased in the 

study years, were asked to participate in the survey. 
Page 11 GAO-04-487T 

We identified several methods that could be used to protect communities. 

First, allowing communities to hold harvesting quota is the easiest and 

most direct way under an IFQ program to help protect fishing 

communities. According to fishery experts and participants, fishery 

managers can give each community control over how to use the quota in 

ways that protect the community’s economic viability, such as selling or 

leasing quota to fishermen who reside in the community. Community 

quota could be held by municipalities, regional organizations, or other 

groups representing the community—unlike traditional individual fishing 

quota, which is generally held by individual boat owners, fishermen, or 

fishing firms. 

Second, fishery managers can establish rules governing quota transfers—

i.e., quota sales–to protect certain groups of fishery participants. We 

identified the following approaches used in foreign IFQ programs that 

were aimed at protecting communities: 

• Prohibiting quota sales. Fishery managers in Norway prohibited all quota 

sales to protect fishing communities in certain locations. 

• Placing geographic restrictions on quota transfers. Iceland and New 

Zealand fishery managers have set limits on where quota can be sold or 

leased to protect certain groups, such as local fishermen and the 

communities themselves. The Icelandic IFQ program, in which individuals 

own vessels with associated quota rather than the quota itself, adopted a 

“community right of first refusal” rule to provide communities the 

opportunity to buy vessels with their quota before the vessels are sold to 

anyone outside of the community. New Zealand’s Chatham Islands 

community trust has, in effect, used residence in the Chatham Islands as a 

requirement to lease its quota. 

Finally, according to fishery managers and experts we spoke with, fishery 

managers can help protect fishing communities by (1) setting limits on the 

amount of quota an individual or entity can hold, (2) requiring quota 

holders to be on their vessels when fish are caught and brought into port, 

and (3) restricting the ports to which quota fish can be landed. 

However, in designing and implementing community protection methods, 

fishery managers face multiple issues/challenges. How these 

issues/challenges are met depends on the fishery’s circumstances and the 

program’s objectives. First, fishery managers face an inherent tension 

between the economic goal of maximizing efficiency and the social goal of 

protecting communities. According to fishery experts we spoke with, this 

Several Methods Are 

Available for 

Protecting 

Communities 
Page 12 GAO-04-487T 

tension occurs because a community often may not be the most efficient 

user of quota. For example, according to Icelandic fishery experts, some 

communities did not have the knowledge and skills to manage their quota 

effectively and eventually sold it, reducing the communities’ economic 

base. Adopting rules that constrain the free trade of quota, such as those 

designed to protect communities, would likely limit the efficiency gains of 

the IFQ program. Therefore, fishery managers have to decide how much 

economic efficiency they are willing to sacrifice to protect communities. 

Methods for protecting communities may also raise concerns about equity. 

In the United States, community quotas or rules aimed at protecting 

certain groups may not be approved because they are not allowed under 

the Magnuson-Stevens Act. For example, National Standard 4 of the 

Magnuson-Stevens Act prohibits differential treatment of states. A rule 

that proposes using residence in one state as a criterion for receiving 

quota may violate the requirements of National Standard 4. Furthermore, 

methods that propose allocating quota to communities can appear unfair 

to those who did not benefit and could result in legal challenges. 

Moreover, allowing communities to purchase quota may be considered 

unfair or inequitable because relatively wealthy communities would more 

readily have the funds needed to purchase quota, while relatively poor 

communities would not. 

Second, fishery managers face several definitional issues in allowing 

communities to hold and trade quota, and communities must decide how 

to best use the quota. 

• Fishery managers need to define the community. However, fishery 

managers and experts told us that communities can be defined 

geographically, such as island communities, and nongeographically, such 

as fishermen who use the same type of fishing gear (e.g., hook-and-line or 

nets) for a particular species. 

• Once fishery managers define the community, they must then determine 

who represents it and thus who will decide how the quota is used. More 

than one organization (e.g., government entity, not-for-profit organization, 

private business, or cooperative group) may claim to represent the 

interests of the community as a whole. For example, rural coastal 

communities in Alaska, which are geographically distinct, could have 

several overlapping jurisdictions, including a local native corporation, a 

local municipality, and a local borough. 
Page 13 GAO-04-487T 

• Fishery managers also need to define what constitutes economic viability, 

which is likely to differ by community because the fishery has different 

economic significance in each community. Some communities primarily 

rely on fishing and fishing-related businesses, while others may have a 

more diverse economic base. Moreover, the balance of industries making 

up a community’s economy may change over time when the area becomes 

more modernized or a new industry enters. 

• Community representatives have to decide whether to keep their quota, 

sell it, or lease it to others. If they keep their quota, they also have to 

decide how to allocate it. Similarly, if they sell or lease their quota, they 

have to decide how to allocate the proceeds. Unless communities can 

decide how to allocate quota or the proceeds, the community quota may 

go unused and thus prevent the community from receiving its benefit. For 

example, the quota New Zealand’s Maori people received from the 

government in 1992 has not been fully allocated to the Maori tribes, largely 

because the commission responsible for distributing the quota and the 

tribes could not agree on the allocation formula.9

Third, along with these definitional challenges, fishery managers and 

communities have to consider issues associated with quota transfers. 

• Prohibiting quota sales may not allow fishing communities or businesses 

to change over time as the fishing industry changes. According to fishery 

experts we spoke with, rules that prevent change essentially freeze fishing 

communities at one point in time and may create “museum pieces.” For 

example, prohibitions on quota sales prevent the fishery from 

restructuring, thus forcing less efficient quota holders and fishing 

businesses to remain in the fishery. Consequently, prohibitions on quota 

sales may actually undermine the economic viability of the fishing 

communities they were designed to protect. 

• Geographic restrictions on quota transfers can be easily circumvented. For 

example, Icelandic officials told us that in their IFQ program, where 

individuals own vessels with associated quota rather than the quota itself, 

companies holding quota easily avoided the “community right of first 

refusal” rule by selling their companies as a whole to an outside company, 

rather than just selling their vessels and associated quota. As a result, 

communities could not use this rule to prevent the sale. Furthermore, 

 9

In December 2003, legislation was introduced in the New Zealand Parliament that, among 

other things, sets out the allocation formula to be used to allocate quota to the Maori tribes. 
Page 14 GAO-04-487T 

communities that could benefit from such a rule may not have the money 

to purchase the quota, while those communities that can afford to 

purchase the quota may not need the rule’s protection. 

Finally, fishery managers also face challenges associated with (1) setting 

limits on the amount of quota an individual or entity can hold, (2) requiring 

quota holders to be on their vessels when fish are caught and brought into 

port, and (3) restricting the ports to which quota fish can be landed. 

Monitoring and enforcing quota accumulation limits can be extremely 

difficult when fishermen create subsidiaries and complicated business 

relationships that enable them to catch more than the quota limit for an 

individual quota holder. Requiring quota holders to be onboard their 

vessels can be impractical, especially for small businesses where the same 

person would have to be on board at all times. According to fishery 

experts we spoke with, an onboard rule would require so many 

exceptions, such as for emergencies and illness, that it would be 

meaningless. Requiring fishermen to bring their catch into ports in a 

particular geographic area may not be healthy for a community’s economy 

in the long term. Such a requirement may subsidize inefficient local fish 

processors that cannot compete on the open market. With reduced 

competition, these processors may offer less money for the catch, thus 

reducing the fishermen’s income and ultimately harming the community. 

According to Shetland Islands fishery managers we spoke with, had 

fishermen been required to land their catch in the Shetland Islands, they 

would have received a price far below the market value, and the processor 

would have had no incentive to restructure into the competitive business it 

is today. 

Mr. Chairman, this completes my prepared statement. I would be pleased 

to respond to any questions that you or other Members of the Committee 

may have at this time. 

For further information about this testimony, please contact me at (202) 

512-9846. Keith Oleson, Susan Malone, Mark Metcalfe, and Tama Weinberg 

also made key contributions to this statement. 

Contacts and Staff 

Acknowledgments 

(360446) 
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